To paraphrase Einstein, “Things should be made as simple as possible, but no simpler.” That’s why this statement in the article is inapplicable to insurance:

“The first is customers, who have grown accustomed to an easy, Facebook-like experience in interacting with large service providers.”

Insurance transactions are not equivalent to Facebook “likes.” Technology as a communications tool is fine. I only communicate with my agent via email. It’s easy, it’s 24/7, and it’s documentation of our communication, something that has paid off for me more than once in the last 25+ years.

But technology is only a tool. It’s a means to an end, not an end in and of itself. The insurance purchase cannot (and should not) be reduced to an Amazon-like “1-Click” purchase. Consumers are not buying crew socks or body lotion on the internet, they’re entering into a complex, legal contract which, if not properly executed after identifying their unique exposures to loss, could result in catastrophic financial loss. Lives could be ruined, families destroyed. This is serious stuff, not the subject of goofy box store clerks and prancing lizards.

If I make a bad decision buying a Bluetooth speaker online, I might be out $30 or the inconvenience of returning it. If I make a bad decision buying insurance online, I could lose almost everything I own and 25% of my income for the next 20 years. No matter how consumers have grown accustomed to an easy, Facebook-like experience online, there is more to the “insurance experience” than the purchasing component. Just ask anyone who has ever had a significant claim, especially one that didn’t go so well. Then, there’s this:

“New algorithms for predicting risk, for example using machine learning, will allow for vast automation of the underwriting process, and managing contracts and identities with the blockchain will reduce the resources needed for fraud detection.”

What it may also enable is “black box” discrimination, even if unintended, because no one knows for sure what those algorithms are using to make underwriting decisions. And, if your insurance premium is based on 600 “big data” factors, how do you know what impact each factor had on your premium or what you can do to control your premium? One might argue, as do data analytics businesses selling their services, that this is somehow good for the insurance company…but what about the consumer? Then we have:

“The second source of pressure comes from competitors. Not only will consumers be more likely to give their business to a digital-native insurer, but entire new kinds of exposure are opening that will give a challenger an opportunity to strike. The cybersecurity market is growing everywhere, along with the pressure to contain and manage the risk better, yet traditional insurers are slow to make convincing offers to threatened customers.”

One reason insurers are slow to respond is that developing an insurance premium that is, by law, adequate, not excessive, and not unfairly discriminatory is very difficult to do for a brand new type of exposure or one that is evolving almost daily. If you can’t price the coverage, you can’t determine what the coverage should be or not be.

Insurers caught flack for not responding quickly to the Uber phenomenon. According to some, two early insurers who responded with broad, inexpensive coverage quickly took a beating with two $1M+ claims because they didn’t understand the exposure, overinsured it, and underpriced it.

Technology can be a cool tool but it is not the be-all, end-all savior or nemesis of the insurance industry. Insurance has always been and will most likely always be a mechanism for assisting consumers and businesses in identifying their exposures to loss and enabling them to manage them without going bankrupt. We must always keep that mission in mind no matter what the revolutionary new idea du jour might be.

P.S. I realize that posts like these will probably earn me an industry reputation as the untechnologically-hip, cranky old man who chases youngsters out of his yard daily, but somebody has to point out the warts on the magical frog. As I state above, technology can be a great tool but we must never lose sight of the FACT that this industry exists to help PEOPLE avoid financial disaster. The foundation of the industry is a collection of many thousands of complex legal contracts we call insurance policies. Enough of the delusion that cutesy store clerks, lizards and robots are the solution to managing risk.

Bill Wilson

Founder at InsuranceCommentary.com

One of the premier insurance educators in America on form, coverage, and technical issues; Founder and director of the Big “I” Virtual University; Retired Assoc. VP of Education and Research from Independent Insurance Agents & Brokers of America.
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19 Comments

Bill, at InsNerds we’re all techies and we love our InsurTech. We also cringe daily at the systems we have to deal with in our carrier day jobs and as customers at the websites we have to deal with for our personal insurance. But we are VERY thankful for your detailed and on the spot technical analysis and we agree with you 100% that given what’s at stake insurance needs to be more than just a gadget and the technological evolution of our industry needs to be done carefully.

if insuretecs would focus on building technology that allows agents to do 10x the amount of transactions in a fraction of the time, that would be meaningful innovation at a practical level. Nobody is doing that. All of the venders, startups, and systems focus on reducing costs at the carrier or replacing the agents entirely. Why not enable the existing distribution force to win far more often and exponentially quicker? To your point, yes a lot of the hype around insuretec is simply that, but to discount the effectiveness of all this attention and capital flowing into our space would be essentially sticking our heads in the sand. A/I bots will replace some CSRs and brokers. Alexa will start recommending insurance coverage and quoting renewals. It will be messy, it won’t be perfect at first, and not everyone will like it or use it. The punchline is what new and better way will the agency force have to make purchasing and servicing as painless as possible or will we still be trying to do it the same way with the same tools in 5 years? We can be critical of new technologies, but unless we have an improved solution – if we don’t improve our process immensely over coming years, we’ll continue to fall behind while the rest of the solutions get better and more accurate.

I’m all for innovation and productivity that is user friendly. What I’m opposed to is simplifying something to a phone app that can’t or shouldn’t be simplified. I get a doctor’s checkup every six months. If my doctor said he had a new more customer friendly way to get me in and out in 3 minutes, I’d undoubtedly change doctors because I know there’s no way he could ascertain my medical condition or health in 3 minutes. We need to make consumers understand that there is a method to what they perceive to be madness and it starts with recognizing that you can’t protect your financial health with a phone app.

Not sure what is happening but there is a great divide Companies like State Farm are losing traction and efficiency which is leading to poor und results. The generation technology gap reminds me of two people standing on different sides of the Grand Canyon. The older one is asking the other how they got there. the younger is wondering why we have not crossed. To this we have to had the coming apocalypse of personal auto and homeowners by the introduction of humanoids who will greatly supplant the auto market and change the concept of home ownership paradigm completely. It will be and is a cataclysmic shift.

the comments above and the article indicate the fissures and fractures taht are appearing as the prelude.

I see these comments as a healthy discussion about the way in which technology is being used. There does not seem to be enough people challenging the bold predictions of how much better things will be for the consumer/society as a result of the application of technology. As for the generation technology gap, perhaps the gap is not the technology itself, but rather the way in which that technology is to be put to use. The gap appears to be more to do with the perception of how insurance works at its fundamental level, and why we even have insurance in the first place.

Great point, Harry. As best as I can tell, most of the industry media simply run the press releases they get from these startups that are loaded with hype and hyperbole. Far too many industry media staff don’t know enough about the insurance industry that they don’t know what to question, so they don’t ask hard questions or challenge the assertions that these startups are “revolutionizing” the industry when the reality is there only short-cutting a necessary process via phone app. You can’t place homeowners insurance coverage in 2-3 minutes and properly protect a family from potentially catastrophic financial ruin. Just because you can do something doesn’t mean that you SHOULD do it.

Harry thanks for commenting. To your erudite offering I commend the following. Technology is neutral. It can be good or bad. It is obvious to this old Behemoth that technology is being used globally to increase power of the state and end any semblance of inalienable rights much less privacy. The we have replaced the I.

For insurance, there will be no auto market as we know it in ten years or less because technology and it’s use are going to eclipse home and auto ownership with on demand substitutes. Good or bad this is what is coming .

Insurance has been misrepresneted globally for centuries. Technology is simply continuing that orthodoxy. Insurance is nothing but pooling of risk through the law of large numbers. Carriers take zero risk. So the customer uses technology to determine which risk pool he wants to join. The first determinative is price as long as a base of coverage is included. If I am buying McDonalds I do not expect or believe I am getting a filet.

Bill Wilson can point out all the coverage gaps he can but at the end of the day do the policies sold through technology get the job done in terms of overall performance customer satisfaction and meeting regulatory requirements?yes they do. Underestimate the ability of the millenials to acquire the info , and then determine on price using technology at your own peril. the ice man no longer delivers ice either.

“at the end of the day do the policies sold through technology get the job done in terms of overall performance…?yes they do.”

If they leave a family uncovered for a catastrophic loss, I’d say they don’t get the job done, the job being saving people from catastrophic loss or at least minimizing their risk of such loss. That doesn’t mean that policies sold through people don’t fail as well. They do, but the question is which means is most effective, technology alone or people using technology. Efficiency alone won’t get it if the means is not effective in accomplishing the goal.

I was reading today about the startup Slice and how they say they can write homeowners insurance without an application:

“Take our home insurance policy. Someone goes online, and they have to register with an email address. We ask them for their [property] address, and they register with their address. Then we come back with a quote. We have all the data we need. We know the property’s construction type, roof type, projection costs. We know the size of the property. We’ve gathered everything.”

Where are they getting this data? What is its credibility? Does it result in rates/premiums that are adequate, not excessive, and not unfairly discriminatory? If no other questions are asked, is the family still exposed to serious financial loss?

Harry
on May 30, 2017 at 7:52 pm

As to your first paragraph Charles, I wholeheartedly agree. I lament that which I see every day in the news media pointing towards an inexorable decline in personal responsibility (i.e. crowd funding for idiots who decided to travel overseas without travel insurance; the Red Cross forking out public donations, after a total loss fire, for those who chose not to buy insurance etc.). If they can get away without buying insurance, why buy insurance at all?
But this is not limited to one generation. I teach Millennials and Generation Z students on an Insurance and Risk Management program. Contrary to how marketers and the media portray them they do understand that insurance is not just a 1-click type transaction and requires more consideration.
Insurance companies, and the InsurTech startups seeking investment in their latest ‘disruptive, ground breaking, game changing’ B.S., are pushing an agenda that gives them short term financial gains but ultimately will end in higher premiums for the rest of us schmucks who still buy insurance based on value rather than price alone, and in greater taxpayer/charity donation dollars being spent on those who don’t consider insurance worth buying in the first place.

Fear mongering and fake news are beneath thsi discssion. If internet polciies failed to provide coverage people would not buy them. Oh yes you can find some ugliness where the Internet policy does not include coverage for damage to leased garage spaces but again do they meet the legal requirements of the law? Will they provide liability coverage at higher limits? Comprehensive and collison remain comprehensive and collision.

I find it amusing that the argument for an agent is better coverage tailored to your needs How many agents ever recommend earthquake coverage outside California? No the solution is to understand that AI and online and full transparency in gathering information to make an informed decision is no longer controlled . It is widely and readily available. The agent that finds ways to channel this has a future The ones that dod not will not.

As to how data I can see my house real time and even count the bricks if I choose. All this can be accessed autoi moatically and in an automated platorm while the person plugs in their address. So no you really do not need COPE info anymore to properly evaluate the risk. If the paradigm is faulty then the risk pool will not perform and the price will reflect it. To presume it won’t is folly.

The fake news is in the press releases of many startups. How does their data show that Bob’s house has custom sized windows and shutters worth $38,000 more than they would cost from Lowes. What data source tells them about Bob’s $120K Tesla roof? Are they aware that Bob’s house is 5,200 sq. ft. in size vs. the 4,100 sq. ft. shown in the tax records and that Bob replaced all of his carpeted floors with Brazilian hardwoods a couple of years ago? Bob is on the lake. Is that his boat dock? Is it Coverage B (it’s not) and if it’s not, is Slice going to recommend endorsing coverage so that his $30K dock is insured? What about his boat? I can go on and on. Good carriers and good agents understand the importance of these inquiries. People with gimmicks focused on maximizing cash flow with minimal effort don’t know and/or don’t care about the importance of exposure analysis.

To resp[ond Very easy In real time you can find and access every improvement or uypgrade ever made in a house Many data sources can be accessed toa ccomplish this. If the tax records are wrong then they should be corrected You can use satelitte imagery to deduce the correct sq footage and a record exists and can be accessed real time on the rest. Welcome to the Internet of Things Bill .

That satellite better have x-ray vision to be able to tell that the areas above a two-car garage, one-car garage, and virtually all of the attic area is now livable space! Zillow is being sued in a class action lawsuit right now because of the faulty data and how it has allegedly undervalued many homes. It’s wrong about my house, as are Zillow, Realter.com, etc., though they’re all wrong in different ways. Big Data at work! Big Data means Big Lawsuits. The trial bar will be loving this stuff.

Bill we have to agree to disagree. I think the number of lawsuits against agents is far gretaer then the number incurred by the online vendors. Since agents do not ever recommend earthquake coverage for their HO policies I kind of doubt they are any betetr informed on what is inside thei house. Ice delieverers never liked the electric ice box either.

Bill Wilson
on May 30, 2017 at 5:19 pm

The refrigerator was an improvement over the icebox in every way, including significantly decreasing the risk of illness and death. Not so with overreliance on “big data.” And my agent has recommended EQ and flood insurance at every renewal since the 1970s. Good agents do. But, like life insurance, if a consumer is not forced to buy it by a lender, many/most won’t…you have to SELL it. And online vendors don’t really SELL anything. If you leave nutrition to children they’ll attempt to exist on candy and McDonalds. Consumers buying insurance online will do the same because of ignorance and naivete.

Charles Ford
on May 31, 2017 at 12:35 pm

Comparing adults to children is another example of hysteria. The electric refrigerator did away with the value of the ice deliverer expertise and consulting just as online and big data are eliminating their modern day counterpart in the insurance world. Big data may not be perfect but neither were transistors when introduced to replace vacuum tubes. Or micro processors when they replaced transistors.

Most agents remain vacuum tubes. No agent in Atlanta Georgia almost never recommends earthquake coverage and their carriers normally do not even have it available as an option or endorsement. If you ask they will consider flood.

What I often see in the ranks of practitioners and the dumbed down watered filled cracker jack designations they acquire makes me I seriously doubt we are looking at too much expertise. I mean they can not even define the word insurance correctly. Again we have to disagree to agree.

If you leave it to the commissioned insurance agent you will pay more and have less. I never use wolves to guard the hen house for the same reason. When I looked at 366 public entity accounts in Alabama I found three written correctly. I can walk into any commercial insured in Atlanta with 200 or more empoloyees and improve the coverage and lower the cost. If they pay me 10% of the savings I will retire a multi millionaire quickly. They get the improved coverage forever. Agents are nothing but a barrier to properly acquiring the best outcome in insurance purchase and coverage.

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